Is this market too hot for investment

[Dominika M]

Hi all, In my area, the average transaction price for houses and condos combined last month was $533,797. Using your rental income calculator, i did the numbers for a small condo, and came up with cashflow of $-435 ($200,000 buy price, $1200 rent price - full details below). That clearly is not a good investment. I'm using it here to illustrate that it seems like a difficult market to start investing in. My question: is this market too hot? Can you give some guidance on setting criteria for making an investment in this market? (The market is the Greater Toronto Area in Canada, but the situation must apply to some US markets). P.S. This is an awesome website, thanks a lot. Dominika Cost Assumptions Purchase Price $200,000 Land Value (25%) $50,000 Building Value (75%) $150,000 Improvements $5,000 Closing Costs $5,000 Total Cost $210,000 Financing Assumptions Downpayment 20% Finance Amt $160,000 Downpayment Amt $40,000 Interest Rate 3.0% Mortgage (Years) 25 Mortgage Payment $759 Cash Outlay $50,000 Year 1 Revenues Rental Income 14400 Vacancy/Loss Rate 0.1 Vacancy/Loss Value -1440 Gross Income 12960 Expenses Property Taxes 2400 Insurance/condo fee 4200 Maintenance & Repairs 1440 Utilities 0 Advertising 0 Administrative 0 Variable Cost PM 1036.8 Fixed Cost PM 0 Other 1 0 Other 2 0 Total Expenses 9076.8 Expenses as % of Gross Income 0.730333333 Net Operating Income (NOI) 3883.2 Cash Flow NOI (Cash Available) 3883.2 Mortgage 9104.857226 Total Cash Flow -5221.657226 Cash ROI -0.104433145 Equity Accrued 4364.545064 Total Return -857.1121625 Total ROI -0.017142243 Cash Flow / Mortgage Ratio 0.426497627